Under Armour Reports Strong 3Q

Under Armour Inc. (UA), one of the leading developers, marketers and distributors of branded sports apparel, footwear and accessories, posted better-than-expected third-quarter 2012 results. The quarterly earnings of 54 cents a share exceeded the Zacks Consensus Estimate by a couple of cents and jumped 22.7% from the prior-year quarter.

Net revenue came in at $575.2 million, up 23.6% from the year-ago quarter, and marginally missed the Zacks Consensus Estimate of $576 million.

The company’s strong year-over-year performance came on the back of robust sales across all segments. The company now expects fiscal 2012 net revenues of almost $1.82 billion, up 24% year over year. Earlier, management had forecast revenue between $1.8 billion and $1.82 billion, reflecting a year-over-year growth of 22% to 24%.

Category Details

The double-digit jump in the top-line was driven by a 22.4% increase in apparel net revenue to $444.6 million, reflecting growth across men’s, women’s and youth apparel businesses, and innovative products such as Studio product and Armour Bra. Under Armour remains optimistic about a healthy market for Studio product and Armour Bra.

Footwear net revenue soared 21.4% to $63.2 million, due to the new running footwear introduced in 2012, which includes the strong performance of the UA Spine.

Accessories net revenue rose 37.1% to $54.4 million during the quarter, reflecting healthy performance by headwear and bands. Licensing revenue elevated 24.8% year over year to $13 million.

Baltimore, Maryland-based Under Armour announced that direct-to-consumer net revenue surged 31% during the quarter, representing 24% of the total revenue. Under Armour opened four new Factory House stores during the quarter under review, increasing the store count to 96. Moreover, the company expects to open five new Factory House stores during the fourth quarter.

Margins

Gross profit rose 24.6% to $280.4 million during the quarter, while gross profit margin expanded 30 basis points to 48.7%, reflecting lower input costs and positive contribution from North American region. Operating income jumped 21.4% to $91 million, whereas operating margin shriveled 30 basis points to 15.8%, reflecting a 60 basis point rise in the selling general and administrative expenses as a percentage of sales.

The company now expects gross margins to decline by 40 basis points year over year. Earlier, Under Armour projected gross margins to remain flat to marginally down compared with the prior year.

Operating income is now projected to be $207 million, up 27% year over year for fiscal 2012. Earlier, the company expected operating income in the range of $205 million to $207.

Other Details

Under Armour ended the quarter with cash and cash equivalents of $157 million, total long-term debt of $72.2 million and shareholders’ equity of $758.4 million. The company had no borrowings under its revolving credit facility of $300 million at the end of the quarter.

Capital expenditures were approximately $16 million for the quarter under review. Management now expects fiscal 2012 capital expenditures to be at the upper end of the previous guidance range of $60 million and $65 million.

Currently, Under Armour, which competes with Nike Inc. (NKE) and Columbia Sportswear Company (COLM), holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.